SAN DIEGO STILL NEEDS OFFICE-SPACE BROKER

Three leases awaiting renegotiation after city rejected free expertise

After rejecting its former broker’s offer to do the work for free, the city of San Diego has spent more time than it anticipated hunting for a real estate business to help reconfigure its hundreds of thousands of square feet of office space.

The delay has further put off the city’s handling of three multimillion dollar leases for downtown offices housing its employees. The leases expire in less than the two years, with one lease for 153,000 square feet at 600 B St. expiring in less than 10 months.

Commercial real estate experts recommend large tenants begin renegotiations a minimum of two years before leases expire to ensure their best shot at saving money. The Watchdog reported in May that city officials said they expected to hire a broker in July.

Real Estate Assets Deputy Director David Sandoval said the city is not losing any lease renegotiation leverage in delaying just a few more weeks to ensure it finds the best real estate firm for the taxpayer’s money.

“I do not know exactly when the contract will be awarded, but possibly by the end of August, since it is anticipated that the initial interviews will occur in mid-August,” Sandoval said. “The process is moving as quickly as possible. We want to get this right, even if it takes slightly more time.”

The city’s need to reconfigure its leased office space dates to the shelving of its 2009 plan to build a $293.5 million, 576,000 square-foot city hall that would have eliminated its leases, which cost it more than $11 million per year.

The city wants a real estate firm to help it analyze all of its options for saving money, including replacing leases, renegotiating current ones or buying buildings that have decreased in value and remain largely vacant since the recession.

In August 2011, an outspoken critic of the city’s handling of its downtown real estate offered to help the city with its expiring leases for free. Jason Hughes, president of the tenant representation firm Hughes Marino and the man who last negotiated all three of the city’s downtown leases, said he made the offer to get a chance to back up his claims that the city could save money by changing how it handles its office space needs.

“Be assured I have no ulterior motives, except to provide the city with the best professional commercial real estate service possible,” Hughes said in his August 2011 offer letter to Mayor Jerry Sanders. “To that end, I will sign an agreement that would prohibit me from receipt of any compensation whatsoever.”

The Watchdog previously reported on the city’s decision to reject Hughes’ offer. Reached by telephone recently, Hughes said his firm has submitted a $1 bid for the city’s contract work, which he estimates would normally earn his firm more than $1 million.

“I hope we have the opportunity to represent the city. I don’t think there is anybody who even remotely compares to the value I’ve proposed,” Hughes said.

In rejecting Hughes free offer, city officials said they do not have volunteers handle their large business transactions. City Real Estate Assets Department Director James Barwick said the city’s need to look at all of its options required it to go out to bid, to see what services other firms could offer and what price a competition would bring taxpayers.

When asked why the city waited to start the process of dealing with the expiring leases, Barwick said now is the right time. He noted in May that two leases were still about two years away from expiring and said he was confident the city is in a strong position in dealing with the B Street lease.

Barwick and Sandoval would not reveal the names of bidders or their offers. The city’s bid documents spell out a wide range of needs, and indicate the city will choose the bidder who offers the best combination of price and quality.

“All of the information received by the city will remain confidential until an award is made to ensure the integrity of the process,” Barwick said when asked about Hughes’ bid. “It would be inappropriate for city staff to comment on the content of the proposals or the amount bid by the respondents.”